Wednesday, July 01, 2015

Reading :: The Invention of Enterprise

I picked this book up from the library to get a historical perspective on entrepreneurship. Enterpreneurship is a slippery term, of course: some authors, such as Schumpeter, reserve it only for creating new combinations; others apply it to any new business, such as a new coffee shop that is essentially similar to the other coffee shops with which it is competing. The authors of this historical collection—of which there are many, since the collection has 18 chapters—are not unanimous on this question, but tend toward the latter usage.

The chapters overview a number of eras and places: Mesopotamia, Rome, the Medieval Middle East and Europe, 17th-20th century Britain, 19th century Germany, 18th-20th century US, India, China, and Japan. The sweep is overwhelming. I won't examine all of these chapters, but I'll pick some highlights from some of them.

In Chapter 1, "Entrepreneurs: From the Near Eastern Takeoff to the Roman Collapse," Michael Hudson frames the piece with the Marx-Weber disagreement. A century ago, he says, economists simply assumed that entrepreneurs played a role in archaic trade: Adam Smith and Karl Marx both suggest that the economic explanation should be at the root. "There was little room for Max Weber's idea that a drive for social status might dominate economic motives" (p.8). So, for instance, when an excavation of a Mycenaean Greek site turned up accounting records, the building was assumed to be a merchant's house—not a public administrative center (p.8). But "Translation of cuneiform records over the past century has changed these attitudes" (p.8). And it has forced a reevaluation of the role of enterprise throughout history.

Specifically, Mesopotamia—where the Sumerians first invented writing—was resource-poor (p.11). That meant encouraging peaceful trade, which required enterprise, which in turn required a central way to raise and administer exports (p.12). City temples and palaces played that role (p.12).

In Chapter 2, "The Scale of Entrepreneurship in Middle Eastern History: Inhibitive Roles of Islamic Institutions," Timur Kuran argues that a society can be predisposed toward or against entrepreneurship (p.64); his position is that the medieval Middle East was predisposed against it, due in great part to the Islamic inheritance system, which made it difficult to preserve successful enterprises beyond a single generation: the system mandated individual shares for "all members of the nuclear family, male and female," which is highly egalitarian but makes it far more probable that an enterprise will be broken up to satisfy the inheritors (p.69). In addition, the corporation was absent (p.69). A third factor was the attitude that the Quran "outlines a way of life that cannot possibly be improved upon," and in some contexts, this attitude impeded innovation: "in an already flawless social order, innovations cannot yield benefits and may well do harm" (p.73).

In Chapter 4, "Tawney's Century, 1540-1640: The Roots of Modern Capitalist Entrepreneurship," John Munro discusses the linkage between Weber's understanding of the Protestant Ethic and that of Richard Tawney, "unquestionably one of the very most important economic historians that England has ever produced" (p.107). Munro notes that during "Tawney's Century" (not the century in which he lived—his lifespan was 1880-1962), Protestant Dissenters accounted for up to half of the scientists and inventors listed in the Royal Society and at least half of the known entrepreneurs during the Industrial Revolution—even though Dissenters represented only 5-10% of the population (p.107).

Weber argued in 1904, and Tawney amplified in 1926, the thesis that Calvinism supplied the spirit of modern capitalism because of the impact of its three essential doctrines: predestination; calling (and one's success in one's calling provided proof of one's predestination); and worldly asceticism (in which one's profits were driven back into one's calling, in this case, one's business) (p.108). This thesis seems to explain the success of the Dissenters

But Munro also notes that the Dissenters were barred from government, church, and school positions (p.109)! Here is a second possible explanation: Dissenters were disproportionately represented in entrepreneurship and the sciences because they were disproportionately barred from other positions.

In Chapter 7, "Entrepreneurship and the Industrial Revolution in England," Joel Mokyr notes another factor in the same time period. Essentially, entrepreneurship required trust, and 18th-century Britain supplied such a mechanism: one's reputation as a gentleman (p.189). "What mattered for the development of the economy was that people who felt constrained by the gentlemanly code of behavior behaved honorably, kept their word, and did not renege on promises. They did not blindly maximize profits" (p.190). And by supplying this substrate of trust, the gentlemanly code allowed entrepreneurs to hold together a network rather than just a market. It enabled the building of social capital, which in turn spurred the development of institutions ("from scientific academies to drinking clubs") that allowed entrepreneurs to create networks that could support market activity (p.191). (Compare to coworking.) Greater trust means a greater chance of becoming an entrepreneur (p.193); "'better cultural values have a large economic payoff'" (p.193, quoting Guiso, Sapienza, and Zingales).

What I notice, as I reread my notes on this book with the Marx-Weber debate in mind, is that these different accounts support the Weberian standpoint. According to them, entrepreneurship (and economics in general) isn't just a cause that effects religion and cultural norms. It is also effected by by religion and its strictures (Ch.2, 4) and by cultural norms (Ch.2, 7).

Clearly I haven't done justice to this thick collection by reviewing just a few chapters. If you're interested in the history of entrepreneurship, I recommend you pick it up and read it for yourself.